Sixfold Rise in Iran Exports to EU

Italy has been the biggest importer from Iran in Q1 among all European states, as it bought €807.4 million worth of Iranian goods during the period

Iran exported €2.77 billion worth of goods to the European Union in the first quarter of 2017, registering a sixfold rise compared with the preceding year's corresponding period.

Mineral fuels, mineral oils and products of their distillation, bituminous substances and mineral waxes accounted for the majority of Iran’s exports to the EU during the period, with a total value of €2.5 billion, according to Eurostat’s data shared with the Financial Tribune.

Non-oil exports, however, still remain unimpressive. Fruit and nuts (€72 million) and plastic products (€48.5 million) were other top exports during the period.

Iran has been ramping up exports, particularly hydrocarbons, over the past few months to regain a market share it lost during the years it was under trade sanctions imposed by the United Nations Security Council over the country's nuclear energy program.

Efforts have been underway to restore traditional markets such as Greece and Italy, alongside a push to win new customers ever since the sanctions were lifted in January last year, as part of a landmark nuclear deal Tehran clinched with the world powers in 2015.

Italy has been the biggest importer from Iran in the first quarter among all the European states, as it bought €807.4 million worth of Iranian goods during the period.

France, Spain, and Greece followed with €614.6 million, €329.6 million and €320 million worth of imports respectively.

Iran imported €2.52 billion worth of commodities from the European Union during the same period, recording a %56 rise year-on-year, the Eurostat figures show.

The imports mainly included nuclear reactors, boilers, machinery and mechanical appliances and parts, with a total value of €665 million.

Vehicles and their parts and accessories with $245 million and aircraft, spacecraft and their parts with $242.6 million came next.

Germany topped the list of exporters to Iran, shipping €694.4 million worth of goods to the Islamic Republic in three months. France came second with €461 million and Italy followed with €418.6 million.

According to the European Commission, the EU exported over €8.2 billion worth of goods to Iran in 2016, up 27.8% YOY. The exports mainly included machinery and transport equipment (€3.8 billion, 46.2%), chemicals (€1.8 billion, 22.2%) and manufactured goods (€0.7 billion, 8.8%).

The European bloc imported about €5.5 billion worth of goods from Iran in 2016, up 344.8% YOY. The imports were mainly energy-related, including mineral fuels (€4.2 billion), manufactured goods (€0.4 billion) and food (€0.3 billion).

European Firms Flocking to Tehran Widen Divide With US

Iran made progress this week in preserving its newfound place in the global economy.

French energy giant Total SA and German carmaker Volkswagen AG announced agreements to plow money into the Islamic Republic, the first to be finalized since US President Donald Trump took office, threatening to abandon the 2015 deal that rolled back a decade of sanctions on Iran, Bloomberg reported.

The investments end months of speculation that America’s shifting foreign policy would scare western companies away from taking bets on the Middle East’s fastest-growing economy. They also highlight the widening rift between Trump and European allies who back President Hassan Rouhani even as the White House reviews the nuclear accord he helped engineer.

“People were waiting for the sign to see which direction things will go,” said Homayoun Falakshahi, a senior research analyst for Middle East and North African upstream at Wood Mackenzie consultancy in London.

Total’s plan to invest $1 billion for developing Iranian natural gas fields indicates “that the likelihood of it being scrapped is not that big”.

The more business Europe has at stake in Iran, the less inclined it will be to backtrack on relations with Rouhani who is keen to open the country to foreign investment.

Iran boasts the world’s largest natural gas reserve and is home to 80 million consumers.

No Dollars

Sanctions still bar US banks from doing business in Iran, a restriction that extends to European counterparts with significant American exposure.

Investments in Iran “can’t be done with dollars or using US banks”, said William Breeze, a partner at Herbert Smith Freehills LLP in London specializing in energy, natural resources and infrastructure finance. Companies will instead need to secure funding from Asia or midsized European lenders.

For Total, the risks are worth the potential rewards of signing a 20-year agreement that will eventually see the consortium inject $4.8 billion into Iran.

“I will come back to Iran again because this contract is the first of many,” Total Chief Executive Officer Patrick Pouyanne said on July 4.

Carmakers, aircraft, and drug producers are also taking their chances. Volkswagen, which last sold cars in Iran 17 years ago, signed a deal with a local importer to offer Tiguan compact SUVs and the Passat family car at dealerships in and around Tehran. France’s Peugeot SA was the first carmaker to reenter the country last year.

Falakshahi predicts another four or five energy companies will follow with investment agreements in the next year.

Royal Dutch Shell Plc and Eni SpA are already in talks on developing local fields. The Total deal was “the contract that the oil industry was watching closely and everyone was waiting for”, he said.